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Do Individuals Recognize Cascade Behavior of Others? - An Experimental Study -

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  • Tim Grebe
  • Julia Schmid
  • Andreas Stiehler

Abstract

In an information cascade experiment participants are confronted with artificial predecessors predicting in line with the BHW model (Bikchandani et al., 1992). Using the BDM (Becker et al., 1964) mechanism we study participants' probability perceptions based on maximum prices for participating in the prediction game. We find increasing maximum prices the more coinciding predictions of predecessors are observed, regardless of whether additional information is revealed by these predictions. Individual price patterns of more than two thirds of the participants indicate that cascade behavior of predecessors is not recognized.

Suggested Citation

  • Tim Grebe & Julia Schmid & Andreas Stiehler, 2006. "Do Individuals Recognize Cascade Behavior of Others? - An Experimental Study -," SFB 649 Discussion Papers SFB649DP2006-079, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  • Handle: RePEc:hum:wpaper:sfb649dp2006-079
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    Cited by:

    1. Ron W. NIELSEN, 2016. "The Unresolved Mystery of the Great Divergence is Solved," Journal of Economic and Social Thought, KSP Journals, vol. 3(2), pages 196-219, June.
    2. Georg Weizsacker, 2010. "Do We Follow Others When We Should? A Simple Test of Rational Expectations," American Economic Review, American Economic Association, vol. 100(5), pages 2340-2360, December.
    3. Enke, Benjamin & Zimmermann, Florian, 2013. "Correlation Neglect in Belief Formation," IZA Discussion Papers 7372, Institute for the Study of Labor (IZA).
    4. Enke, Benjamin & Zimmermann, Florian, 2013. "Correlation Neglect in Belief Formation," IZA Discussion Papers 7372, Institute for the Study of Labor (IZA).
    5. repec:eee:jouret:v:85:y:2009:i:3:p:274-287 is not listed on IDEAS
    6. Ron W. NIELSEN, 2016. "Scientifically Unacceptable Established Knowledge in Demography and in Economic Research," Journal of Economics Library, KSP Journals, vol. 3(3), pages 429-457, September.
    7. Ron W. NIELSEN, 2016. "Mathematical Analysis of Historical Income Per Capita Distributions," Turkish Economic Review, KSP Journals, vol. 3(2), pages 300-319, June.
    8. Bohren, Aislinn & Hauser, Daniel, 2017. "Bounded Rationality And Learning: A Framework and A Robustness Result," CEPR Discussion Papers 12036, C.E.P.R. Discussion Papers.

    More about this item

    Keywords

    Information Cascades; Bayes' Rule; Decision Under Risk and Uncertainty; Experimental Economics.;

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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